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SAFEST ISLAMIC BANKS IN THE GCC

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Saudi Arabia’s Al Rajhi Bank remains the strongest Islamic bank in six states of the Gulf Cooperation Council (GCC). Its A+ ratings from all three major credit-rating agencies puts it ahead of Abu Dhabi’s Al Hilal Bank, which has A+ ratings from only two agencies, Fitch and Moody’s. Kuwait Finance House (KFH) is ranked third, with two A+ ratings and one A-.

This is the second time that Global Finance has ranked the safest Islamic banks in the six states that constitute the GCC: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE). The UAE comprises seven semi-autonomous emirates, of which the largest are Abu Dhabi, Dubai and Sharjah.

Last time, nine banks held ratings from two of the three agencies and so were eligible for inclusion. This new ranking has 10 banks, with Boubyan Bank of Kuwait entering the list at number seven after receiving a rating from Fitch in June 2014. The bank was already rated by Moody’s.

There are 25 Islamic banks in the GCC. In addition to the 10 that qualify for inclusion in the safest banks listing, five hold a rating from only one of the three major agencies, and another 10 have no rating from any major agency (although some are rated by smaller agencies, such as Capital Intelligence).

Global Finance’s Safest Islamic Banks in the GCC ranks banks that offer only Islamic products. Those that offer a mixture of conventional and Islamic products are not eligible for inclusion. The vast majority of conventional GCC banks now offer Islamic products, but it would be inappropriate to set an arbitrary percentage of Islamic business above which such banks would be considered “Islamic” and below which they would be considered “conventional.” (Such a percentage would, in any case, be impossible to determine from public sources or to verify, if based on nonpublic information.)

With one exception, Global Finance’s ranking of the safest Islamic banks in the GCC follows the same eligibility and scoring system that is used for the listings of the Safest 50 Global, Emerging Markets and Commercial Banks. The exception is that there is no minimum size criterion. All 25 Islamic banks in the GCC are eligible for inclusion if they have two ratings from the three major credit-rating agencies. (In contrast, for the three “Safest 50” lists, banks must be among the biggest 500 in the world, ranked by assets.)

Al Hilal Bank’s score of 17 points would have placed it among the Safest 50 Emerging Markets Banks if it had not been ineligible, owing to its small asset size.

Banks receive scores ranging from 10 points for an AAA rating to one point for BBB-. For banks that have ratings from only two of the agencies, an implied third score is calculated by taking the average of the two actual rating scores and deducting one point. Banks with the same scores are ranked by asset size, reflecting the strong positive correlation between asset size and ratings.

In September 2014, Fitch upgraded the support ratings of eight UAE-based banks, including Al Hilal, Abu Dhabi Islamic Bank, Dubai Islamic Bank and Sharjah Islamic Bank, all of which feature in Global Finance’s Safest Islamic Banks ranking. However, the increases in the support ratings did not lead to any upgrades in the banks’ long-term foreign-currency credit rating—the rating used to score the banks.

Fitch and Moody’s each rate 12 of the 25 Islamic banks in the GCC, while S&P rates four. Only three banks have ratings from all three agencies: Al Rajhi, Kuwait Finance House and Sharjah Islamic Bank.